Student Loan Overpayment
Recently I have had the misfortune of discovering how student loan repayments actually work in the UK. For those paying out of their salary the Student Loans Company calculates the outstanding balance at the beginning of the tax year. If you still owe money they instruct HMRC to continue to receive payments, these payments are then kept by HMRC and only sent on to the SLC at the end of the year.
This means that if at the beginning of the tax year you owe some small amount, around £100 in my case, you will pay off your debt in the first month but continue to pay for the rest of the year before anybody will take any action to stop the payments. In my case by the time I noticed what had happened I had overpaid by over four thousand pounds!
Given how the system works it's not surprising that the SLC collected £15 million in overpayments in the 2009/2010 tax year. Another report had the total overpayments at £48 million as of March 2008 with the average graduate overpaying by £533. It seems former students are expected to track repayments closely and contact the SLC in advance of paying off the loan to make sure payments are stopped in time.
The system is simply bizzarre, causing overpayment of student loans by design. I've spent today faxing off (my first encounter with this arcane technology) payslips to the SLC in the hope of speeding up the repayment process. I've been told to phone again on Friday to check my fax actually got to someone and is being acted upon. I have now joined the 57000 graduates waiting for a refund from the SLC. One of the worst aspects of which being that the SLC never contact you if there is a problem, for example if they are awaiting more information, they will just put your claim at the bottom of the pile and forget about it. This means you have to keep checking up on the progress of your claim in order to get it processed efficiently.
Fortunately the SLC does now accept payment by direct debit allowing you to avoid the old overpayment-by-default system. I only wish they promoted this method by perhaps sending me a letter warning of overpayment and how to avoid it. Given that the SLC knew at the start of this tax year that I owed much less than I paid in the previous year I feel a courteous warning is the very least they could have done. It would be interesting to file a freedom of information request to see what percentage of students have switched to direct debit and how many are unknowingly still on the current broken system.
Update: I spoke about my problems with the SLC on a BBC Radio 4 programme about the issue and was featured in a BBC News article on student loans.